Mueller Industries (MLI): A Bull Case Theory

We came across a bullish thesis on Mueller Industries on George Atuan, CFA’s Substack. As of 28ᵗʰ August, Mueller Industries’s share was trading at $96.50. MLI’s trailing and forward P/E were 15.34 and 18.21 respectively according to Yahoo Finance.

Mueller Industries (MLI) is a well-run industrial company that manufactures essential copper and brass products for plumbing, HVAC, and infrastructure. The company benefited massively from the pandemic-era construction boom and inflation, with its profit margins nearly doubling thanks to surging copper prices and favourable inventory accounting. However, the author expects the company’s fat margins to slim down as things normalize, and their valuation of $109 per share is only ~16% above the market price.

The company’s evolution accelerated in recent years, with strategic moves such as selling off non-core businesses and buying companies to expand into higher-margin niches. Mueller has made acquisitions to bolster growth, including the purchase of Nehring, a manufacturer of electrical wire and cable, to plug into the utility and telecom markets. The company has a strong balance sheet with no debt and over $1 billion in cash, and a shareholder-friendly management with big buybacks and dividend hikes.

The author concludes that Mueller Industries is a good business, but not quite cheap enough to buy, given the risk that today’s high profits won’t last. The company’s recent gross and operating margins are way above historical levels, and there’s a risk they could revert more sharply or sooner than expected. The author models a fair value of around $109 per share, which is roughly 16% above the recent trading price, and recommends keeping Mueller on a watchlist for potential future opportunities.

While this is our first coverage on Mueller Industries, we’ve recently examined another bullish thesis in the same Metal Fabrication industry, TG, that sheds light on similar long-term dynamics. A key similarity between Mueller Industries (MLI) and TG is their exposure to infrastructure growth, albeit through different avenues. TG is positioned to benefit from strategic repositioning, whereas MLI manufactures essential copper and brass products for plumbing, HVAC, and infrastructure. While TG’s growth prospects are amplified by its ties to high post Q1 demands, MLI’s diversified product portfolio and strategic acquisitions, such as the purchase of Nehring, have enabled it to tap into higher-margin niches. Both companies boast strong balance sheets, with TG being debt-free and MLI having over $1 billion in cash and no debt, setting them up to capitalize on emerging opportunities in their respective spaces. However, their investor appeal differs, with TG being touted as a deeply undervalued asset base and MLI presenting a more traditional industrial investment case.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to Blackrock.